Learning Lessons From The Swiss National Bank

Here is a look at the unconventional moves that the Swiss National Bank took over the last year.

2015 has been a rough year for the Swiss National Bank, which is based in Zurich. It lowered its interest rates to the extent that the rates moved to the negative zone. This was not enough as the bank then removed the minimum exchange rate of the Swiss franc against euro. This prompted a collapse of the euro by about 30% against the franc. While these steps might sound positive, but due to most of the bank’s currency holdings being in euros, the weakness of the euro led to paper losses to a large extent when these were translated back in French.

Transparency of SNB

The SNB was not afraid to do things differently as it became evident last year. It started to expand its foreign equity holdings as well as stocks. The bank has a transparent policy in place about its performance and holdings which is novel as compared to other central banks. The quarterly reports that are issued showcase the information in a comprehensive and thorough manner. The second quarterly report of 2015 revealed that the bank had about 18% of its assets in equities. This represents about 15% of the gross domestic product of the country. The bank holds 37 billion in US dollars which is in shares invested in US listed companies. At the time when it started to buy stocks of US companies it has become one of the largest shareholders of stocks in Apple. Besides Apple it has significant holdings in businesses like Johnson & Johnson, Proctor & Gamble, General Electric and others like Facebook, Coca Cola.

Record losses in 2015

As the exchange rate ceiling was removed, massive losses were reported by the bank in the first quarter of 2015 itself. It has been a momentous loss for the bank, biggest in its history. The second quarter saw more losses which led to the bank losing about seven percent contribution to the country’s GDP. The second half of the year saw the bank recovering some of its losses which stood at 23 billion US dollars.

Untimely investments

It was furthered by certain untimely investments. Not only did the stocks of Apple fall, but the holdings of the bank in Valeant Pharmaceuticals also suffered. The bank increased its holdings in Valeant just before the company landed in a controversy of gouging its prices and having committed fraud which was on the lines of Enron. With the stocks becoming less than half, about 146 million of the losses of SNB can be contributed to the holdings of Valeant alone.

Intervention in 2016

The consumer prices of the country have fallen in 2015 and Switzerland sees a rise in unemployment rates. The stocks of the nation suffer and SNB has decided to take aggressive measures in 2016. It is known to take bold moves and it is anticipated that the SNB will continue to design such moves to help the country’s economy in 2016. It however, reflects the current state of many European countries. The European Markets Are In The Favor Of The Federal Bank, do have a Look At The Article.